In its first examination of financial agreements, the High Court in Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807 set aside two financial agreements, casting considerable doubt on the viability of financial agreements which are a bad bargain for one of the parties. Unanimously, the High Court set aside the two agreements for unconscionable conduct. The majority also set them aside for undue influence. It was unnecessary to decide whether there was duress.

The wife’s lack of free choice which gave rise to the majority upholding the trial judge’s finding of undue influence was summarized by the trial judge:

Her lack of financial equality with the husband;

Her lack of permanent status in Australia at the time;

Her reliance on the husband for all things;

Her emotional connectedness to their relationship and the prospect of motherhood;

Her emotional preparation for marriage; and

The “publicness” of her upcoming marriage.

In relation to unconscionable conduct, the majority (and the other 2 judges separately in minority judgments) referred favourably to the trial judge s’ findings that the wife’s powerlessness and lack of choice but to enter into the agreements pointed inevitably to the conclusion that she was at a special disadvantage. The husband was aware of the wife’s special disadvantage and it was, in part, created by him:

He created the urgency with which the pre-nuptial agreement was required to be signed and the haste surrounding the post-nuptial agreement and the advice upon it.

She had no reason to anticipate an intention on his part to insist upon terms of marriage that were as unreasonable as those contained in the agreements, even though she knew in advance that there was to be some type of document.

The wife and her family members had been brought to Australia for the wedding by the husband and his ultimatum was not accompanied by any offer to assist them to return home.

The High Court majority said these matters increased the pressure which contributed to the substantial subordination of the wife’s free will in relation to the agreements. The husband took advantage of the wife’s vulnerability to obtain agreements which, on the uncontested assessment of the wife’s solicitor, were entirely inappropriate and wholly inadequate.

For the purposes of this piece, perhaps the most important aspect of the judgment is the attitude of the High Court to “a bad bargain.” Whilst the Full Court of the Family Court has, in relation to s 90G(1A) said that parties are free to enter into “a bad bargain”, the High Court did not agree that in relation to s 90K “a bad bargain” will always be upheld, and considered that a bad bargain may contribute to it being set aside. The terms of the agreement were so unfavourable to the wife – a bad bargain – and the majority considered those terms to be relevant to a finding of undue influence. It said (at [56]) that the trial judge:

“was correct to consider the unfair and unreasonable terms of the pre-nuptial agreement and the post-nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated. Of course, the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party. However, despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence if a pre-nuptial or post-nuptial agreement is signed despite being known to be grossly unreasonable even for agreements of this nature.”

The majority set out factors which it identified as being relevant to whether a financial agreement should be set aside for undue influence (at [60]):

Whether the agreement was offered on a basis that it was not subject to negotiation;

The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement;

Whether there was any time for careful reflection;

The nature of the parties’ relationship;

The relative financial positions of the parties; and

The independent advice that was received and whether there was time to reflect on that advice.

The decision raises many questions. A detailed analysis of Thorne & Kennedy, is beyond the scope of this piece. However, legal practitioners are likely to be more wary of advising client entering into financial agreements where there is unequal bargaining power and it is a “bad bargain” for one of the parties.

Further reading: A more in depth account of this case can be found in ‘Thorne v Kennedy – Has the High Court hung financial agreements out to dry?’ by Jacky Campbell available here.

This is the final instalment of our seven part series of Hot Cases of 2017 by Jacky Campbell. If you missed our ‘Hot Cases in Family Law 2017’ webinar, watch the recording here.